Can my 16-year-old set up different types of Isas in the same tax year?
He is now 16 and I believe he is allowed to set up a cash Isa, too. I would like to know if he is allowed to start a Help to Buy Isa because I’ve noticed Halifax is paying 4% on its Help to Buy Isa, a much better rate than ordinary cash Isas.
I realise there is a lower limit on the amount he could invest in a Help to Buy Isa than in a cash Isa."
"You are right that at 16 years old, your son can open an adult cash Isa as well as holding a Junior Isa and if he would prefer, he can start a Help to Buy Isa. As you also rightly point out, the amount that can be saved into a Help to Buy Isa is much less than the current annual adult Isa allowance of £15,240. When it’s set up, a lump sum of up to £1,000 can be added plus a maximum of £200 a calendar month.
If he has more than that, some providers offer what is known as a Portfolio Isa, which means that multiple Isas can be opened with the same provider without falling foul of the rules which state that you can only subscribe to one cash Isa per tax year.
Unfortunately, at the moment Halifax does not offer such a structure, so any additional funds would need to go into a standard savings account.
This may still be tax free if your son is a non-taxpayer. Even if he’s not, the introduction of the new Personal Savings Allowance in April 2016 means that for a basic-rate taxpayer, the first £1,000 of savings interest earned will be tax free anyway.
If you are giving your son the cash to save, you should be aware that there may be a tax liability to you on the interest earned on any money given to him, until he reaches the age of 18.This even applies to cash put into an adult cash Isa (but not a Junior Isa).
However, if the gross interest earned is less than £100 for each parent’s gift, it will be treated as the child’s under the ‘de minimis’ rules.
This means that, provided the interest earned does not make him a taxpayer, he will be able to offset this against his personal tax allowance, so it will often be free of tax. If the interest is more than £100 for each parent’s gift, then it will be treated as that parent’s interest for tax purposes and they will need to pay tax at their marginal rate. Gifts from other family members or friends will not be taxed."
Anna Bowes is a founder and director at Savings Champion.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.